We are shocked and disappointed to find that the
government is persisting with the Malaysia- US Free Trade Agreement
(FTA) negotiations despite all the protests and the fact that the US
government is in transition. The latest round begins on Monday, July 14
in Washington, DC.

Civil society has a number of concerns that have never
really been satisfactorily addressed by the government, for example by
releasing a comprehensive cost-benefit analysis. This FTA will have a
significant impact on all sectors of Malaysian society and the economy.
The impact on Malaysian small and medium enterprises (SMEs) is likely
to be particularly severe.

A total of 99.2% of the establishments in Malaysia are
SMEs. According to the Third Industrial Master Plan, the development of
competitive and resilient SMEs are an integral part of the initiatives
for Malaysia to achieve developed country status by 2020.

However, SMEs are likely to be harmed by almost all chapters of the proposed Malaysia-US FTA.

Agricultural SMEs, for example chicken farmers and rice
growers, will find it harder to compete with imported products because
the FTA will remove almost all of Malaysia’s tariffs on US agricultural
products.

These agricultural products are highly subsidised and
sold at below the cost of production. The intellectual property chapter
will also increase the costs for Malaysian farmers who in future will
be trapped with seeds claimed under private property rights.

Manufacturing SMEs will also face increased competition
because the US-FTA will require the removal of almost all tariffs on
manufactured products from the US.

The revenue that the Malaysian government loses from
the removal of these tariffs is difficult to obtain from other sources
according to studies of FTAs by the International Monetary Fund, so one
of the areas of spending that may be cut is assistance to SMEs.

SMEs in the services sector are also likely to face
increased competition due to the FTA. Malaysia has already seen what
happens when it liberalise its services. An example is the opening of
the retail sector to foreign hypermarkets which expanded so quickly
that small local shops could not compete.

Malaysia could reverse this by restricting where a
hypermarket opens because it was not beholden to any FTA to allow
unregulated expansion of foreign hypermarkets.

SMEs that are dependent either directly or indirectly
on contracts from the Malaysian government are also likely to suffer if
Malaysia accepts US demands to open up its government procurement to
American companies via the FTA.

What do Malaysian SMEs have to gain from the FTA? The
United Nations Conference on Trade and Development notes that SMEs face
a variety of obstacles that reduce their ability to benefit from
international trade. Even Australian SMEs did not expect to gain much
from the Australia-US FTA.

Furthermore, for a Malaysia-US FTA to take effect, it
must pass the US Congress. The US government used to have a ‘fast track
authority’ which limited the Congress to voting for or against an
entire FTA.

However, this authority expired on June 30, 2007 and
has not been renewed by Congress. US political analysts point out that
for various reasons, Congress is unlikely to renew it for President
Bush.

This means that even if President Bush signs the
Malaysia-US FTA, this does not bind the Congress or any future US
president. Each member of Congress could make further demands from
Malaysia in order to pass it and Malaysia would not be in a position to
make demands in return.

For these reasons, many trade experts in and outside
Malaysia are puzzled as to why Malaysia is continuing to negotiate this
FTA.

Once again, for the future of the country and our SMEs, we strongly urge the government to stop negotiating.